AIB seen cutting mortgage rates further by Noonan

The Minister for Finance expects State-owned AIB to announce an additional reduction in its variable mortgage interest rates "fairly soon", even though its latest move has not yet taken effect.

Speaking to reporters on the fringes of a financial services conference in Dublin on Thursday, Mr Noonan said: “As AIB becomes more profitable, as the cost of funds remain very low, I think there’s the possibility of a further cut.”

A spokeswoman for AIB, wich has led variable mortgage rate cuts across Irish banks over the past 18 months, committed since late 2014 to keep rates under review. It has moved four times since then to cut such rates by 0.25 percentage points, including an announcement earlier this month, to take effect on July 1st.

The Minister said he plans to call in banks for another round of talks on mortgage costs, even though he and the Central Bank governor Philip Lane each warned that giving regulators power to control variable interest rates could hinder the entry of new players into the Irish mortgage market. They commented after the Government decided during the week week not to challenge a Fianna Fáil Private Members' Bill that would give the Central Bank the power to regulate rates.

Addressing reporters at the same conference, Mr Lane said: "We don't think having legislated caps is the best way of ensuring competition in the mortgage market. Of course, we are subject of laws passed by the Oireachtas so we will work not just to the letter but to the spirit of any law that comes in, so there should be no question about that.

“As always, we stand ready to assist, whether it’s the Government or any member of the Oireachtas. We’re always very happy to discuss and talk to whatever member of the Oireachtas or whatever committee seeks our assistance.”

On Wednesday, the minority Fine Gael Government did not press its amendment that the Fianna Fail Bill be referred to a pre-legislative stage, with the result that it has passed second stage in the Dáil. It now goes to committee stage for further debate.

Mr Noonan had warned the Bill was flawed and challenged its constitutionality.

Bank valuations

Concerns have also been raised about the impact on bank valuations if institutions are forced to reduced their interest rates.

“We’ll have to see what the process is now. It’ll be due to go to committee stage ... within 12 weeks but because prior notification to the ECB is required, it’ll be very hard to meet the 12-week deadline,” Mr Noonan said.

“There is an onus on everybody, particularly the proponents of the Bill, to explain what they have in mind because very often the markets can get the wrong end of the stick. You don’t get many occasions where you can explain detail to the markets but I don’t think there should be any significant drop in the value of the Irish [bank]shares. We’re an awful long way to enactment.”

The Government is keen to float some AIB shares on the stock market over the next 12 months in a bid to get back some of the €20.8 billion bailout the bank received following the stock market crash.

In debating the Bill, Mr Noonan said Irish bank shares had declined by 10.5 per cent since Fianna Fáil began publicising its bill earlier this month.

Fianna Fáil finance spokesman Michael McGrath has rejected that comment and said it was bizarre that there was no reference to the Bill’s constitutionality when it was first debated last July.

Fianna Fáil and other opposition parties want the Central Bank to have power to force banks in the State to reduce standard variable interest rates, which are as high as 4.5 per cent in some cases at a time when the European Central Bank’s main rate is zero.

Some Irish variable rates are more than twice the average being charged across the euro zone area.

Attorney General

Mr Noonan said he had asked the Attorney General for advice on whether the responsibility is on the Government to notify the ECB of Fianna Fáil’s Bill, or the Ceann Comhairle. He expects the ECB to be notified in the “next couple of weeks”.

On the constitutionality issues that he has raised in connection with the Fianna Fáil bill, Mr Noonan said: “First of all, there are very strict and guarded property rights in the Irish constitution and this is an attempt to modify the approach to property rights. In other words shares and the value of shares.

“Secondly, the way the Bill is drafted, much of the effect of this is retrospective because it applies to existing mortgages as well as future mortgages and that gives rise to constitutional issues.

“And thirdly, there is no appeal mechanism. Normally, to keep legislation constitutional when citizen rights are being reduced in any way there should be an appeal mechanism.”